When you run a professional options trading business, you gain the right to buy or sell assets at a set price prior to a specific date. These days, investors can begin options trading from home. Do it right, and you could end up with healthy profits.

Here’s a look at how to get started.

The Basics You Need to Know

First off, let’s cover the basics of options trading. You need to know that the purchase price of an option is called the premium.

You also need to know that a call option refers to having the right to purchase a stock at a set price by a specific time whereas a put option enables you to sell a stock at a set price by a certain deadline. Options can be used to hedge or speculate.

The prices of options are derived from the price movement of the underlying stock or the exchange-traded funds; both of which typically have multiple call and put option contracts that include a number of different strike prices and expiration dates.

Therefore, you have the opportunity to combine different options and use various strategies to buy and sell at the best prices and control your risk. At the most basic level, if you expect a stock to rise in price, you can purchase a call option or sell a put option.

If you expect the price of a stock to fall, you can purchase a put option or sell a call option. And if you expect the stock to stay stable, you can sell a call and/or put option with the strike price near the present price.

Starting Trading Options from Home

Starting to trade options from home is easier than ever before. The first thing you need to do is open an account with a broker that supports options trading.

Once approved, your broker will tell you which options level you are approved to trade. You will then know what options strategies you’re permitted to employ.

Make sure you go with a high-quality brokerage platform that is simple to use. For instance, with SoFi options trading, you are able to trade on an easy-to-use platform that has been intuitively designed and comes with a very helpful educational content hub as well as an in-app trading guide.

If you’re new to options trading, it will be extremely beneficial to be able to access a training guide and other resources. The more you learn about options trading before you begin buying and selling, the quicker you will be able to make sound financial decisions and start making profits.

You can then look at things like whether it’s best to hedge or speculate and come up with winning strategies.

Investing in the Short-term and Long-term

The expiration dates for options trading can range from a few days to several months or years. It simply depends on the liquidity of the underlying stock.

Typically, the shorter the timeframe for an option is, the higher the risk. So, long-term investments are usually the best option for options trading. That means picking ones with monthly or yearly expiration dates.

The longer the expiration date, the more time you will have to make your investment strategy work. Furthermore, with a longer expiration date, the option can retain time value even if the stock ends up trading below the strike price.

Understanding the Risks

Any type of trading involves an element of risk. But the more time you spend understanding options trading and learning the different strategies you can adopt, the more you can reduce the risk.

One thing you should understand is that the risk for the buyer of a put option or a call option is limited to the amount of premium that is paid for the option whereas the seller of the option would theoretically have unlimited risk on a call due to the fact that the price could continue to rise indefinitely.

Determining How Much Money You Need to Invest into Trading Options

There’s no firm rule about how much money you can invest into trading options, but the type of options that you are approved for and the specific policies of the broker you go with will enable you to better determine the minimum investment amount.

Generally speaking, for level one entry, a minimum deposit of $1,000 is required. For levels two and three, the minimum deposit could be as high as $10,000.

The Takeaway

With the right broker, running a professional options trading business from home is easier than you may first think. The key to successful options trading is to simply learn as much as you can about the topic and how to utilize different strategies.

If you’re a complete newbie, you should begin by investing at a low level. As you learn more and begin generating profits, you can invest more and have the potential to make even bigger returns.